Government Contract Fraud

IN ORDER FOR AMERICAN society to function properly, the government must provide its citizens with a variety of services that provide for their safety and security. For example, when a vacant lot full of leaking chemical drums and barrels is discovered in an area that threatens a public drinking water supply, site remediation may be required. Rather than employ a large number of public employees who would be tasked with mitigating a hazard of this magnitude, the government may select a private company to perform the necessary clean up. This private company, commonly referred to as a contractor, works under the authority of a government agency, and the supervision of an agency official.

The agency official responsible for overseeing the contractor's day-to-day activities is known as a contracting officer's representative (COR) or contracting officer's technical representative (COTR). Contractors perform a variety of services for the government, including entering data into information systems, performing scientific experiments, serving as security guards at public warehouses and military installations, constructing buildings and roads, conducting training courses for public employees, and writing and editing government publications. In addition to awarding contracts for services, the government also enters into agreements for products and supplies.

From cleaning solvents and paper clips, to computer systems and military armament, government vendors provide public agencies with a wide range of items that would prove cost-prohibitive for the[Page 368] agency to manufacture independently. In order to ensure that these products meet the needs of the agency, government officials prepare specifications for these items that must be strictly adhered to by prospective vendors.

Ideally, the U.S. government contracting process, which is budgeted at more than $200 billion each year, is mutually beneficial to agencies, product manufacturers, equipment suppliers, and service providers. It is intended to encourage competition among prospective contractors who compete for government projects, ensuring that agencies receive quality products and services at fair market prices. Unfortunately, some government contracting agents and prospective vendors conspire to ensure that a specific firm is selected to provide a good or service. Such illicit activities are referred to in the U.S. Code (18 U.S.C. 201) as bribery, which is defined as “… receiving of anything of value in corrupt payment for an official act.”

Motivations for engaging in these official forms of corruption may stem from a desire on the part of the agency official to receive a kickback from the selected firm, find employment for a friend or relative (other even for themselves after leaving government service), or receive some other form of gratuity or gift (expensive jewelry, vacations).

Vendors who produce agency-specified goods or provide services to the government may conspire in an effort to artificially inflate the price of a product or service. Firms may also engage in the predatory practice of bid-rigging, meaning that a group of well-established prospective contractors notify one another in advance as to what their proposed cost estimate for a government project will be (the bid submission process is usually confidential), and they subsequently take turns submitting low bids on certain projects. By unfairly exchanging their proposed cost estimates, a few key firms are able to simultaneously set the market price and limit competition by new or smaller companies.

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